Background Papers

Jan 4, 2000

IDB borrows $9 billion in 1999

The Bank expects to reach another $9 billion in 2000

The Inter-American Development Bank, which remains the leading source of multilateral financing for economic and social development in Latin America and the Caribbean, raised $9 billion in international capital markets during 1999, the largest total in its history. The IDB had borrowed $5.8 billion in 1998.

The Bank expects to repeat the record volume in 2000 by borrowing the equivalent of $9 billion, according to its Capital Markets Division Chief, Stephen Abrahams. The larger-than-usual borrowing program will be largely driven by a new credit line the IDB established late in 1998 to help borrowing countries weather international financial turmoil.

"As in previous years, the borrowings will be done as straight U.S. dollar bond offerings or as offerings in other currencies swapped into U.S. dollars. We also have need for some 1 billion of euros this year on an after-swap basis," Abrahams said.

The IDB, which has had a triple A credit rating for its debt ever since its first bond issue in 1962, regularly turns to capital markets to seek the lowest cost financing for its funding program. Thanks to its prudent policies, the Bank is able to offer borrowing member countries long-term loans at very competitive interest rates.

With its total approved capital standing at $101 billion, and given its member countries’ credit quality and support and its preferred creditor status in all its borrowing members, the IDB is well positioned to remain among the top-rated lending institutions.

Highlights of 1999

Last year the Bank carried out 27 borrowing transactions. The average maturity of the borrowings was six years, with maturities of individual transactions ranging from two years to twenty years.

In response to the sharply increased borrowing requirements and a reduction in the availability of arbitrage-driven opportunities, the Bank focussed its funding on institutionally targeted bond issues in 1999. Continuing its efforts to broaden the demand for its securities, the Bank issued debt in a variety of currencies, maturities and structures during 1999. It was active in the U.S. dollar market, issuing five benchmark $1 billion global bonds in maturities of two, three, five (two transactions) and ten years. Inaugural global bonds were also issued in Canadian dollars, Japanese yen, and New Zealand dollars. Following strong demand, one U.S. dollar global bond was increased from $1 billion to $1.35 billion, and the Japanese yen global bond was increased from ¥100 billion to ¥150 billion of outstanding amount. As a result, institutional investors supported 93% of the Bank’s funding program in 1999 compared to 66% in 1998. Put another way, retail targeted transactions represented only 7% of 1999 funding while that number in 1998 was 34%.

In addition to the benchmark transactions, the Bank also issued bonds denominated in pounds sterling, Greek drachma, euros, Swiss francs, Hong Kong dollars, and Taiwan dollars. These borrowings were all swapped into U.S. dollar liabilities.

The Bank continued to diversify its borrowing tools by inaugurating its discount note program. Discount notes are short-term securities of up to one year issued in the U.S. agency market. The Bank’s program is authorized to issue up to US$5 billion outstanding, but the average balances are aimed to be much smaller. The discount note program offers the Bank an additional cash management tool.

In order to keep tight controls on credit risk exposures, the Bank enters into swaps only with highly rated counterparties with negotiated master agreements that provide for daily marking to market and collateralization.

Outlook for 2000

The Bank will continue to rely on institutionally targeted benchmark transactions in 2000. In U.S. dollars, the Bank expects to issue one larger benchmark deal in each of the maturities five and ten years. Depending on the evolution of funding needs for disbursements under its emergency lending program, the Bank may also contemplate a large U.S. dollar benchmark transaction in the shorter maturity of two to three years. Following this strategy for U.S. dollar funding, the Bank has already issued its largest ever bond issue in January, a US$2 billion, ten-year maturity global bond.

The Bank is also contemplating issuing strategic benchmark deals in euros and, possibly, in Japanese yen. This benchmark issuance will, as in past years, be supplemented by arbitrage-driven transactions as opportunities emerge.

For further information, please contact Stephen Abrahams, chief of the IDB’s Capital Markets Division, at (202) 623-2277 or Håkan Lonæus, chief of the division’s Funding Section at (202) 623-2441.